Bansturbation: sub-optimal

Here's another example of the "bansturbation" Tim Worstall bemoans:

The Energy Saving Trust has urged retailers to stop selling [patio] heaters after a report (pdf) suggesting their use will almost double over the next year.

This is just moronic.
Let's grant that patio heaters make a large contribution to climate change, thus imposing an external cost onto others. In this case, the solution is to either tax them or - more likely - tax energy usage so that products that use lots of fuel such as patio heaters are more expensive. This would ensure that the private cost of the patio heater equals the social cost.
Such a policy is obviously better than an outright ban. This is because  there are some people who derive enormous pleasure from such heaters and would be happy to pay extra to keep using them - possibly by cutting other forms of energy use.  And their extra payment - by definition - compensates everyone else. A ban hurts these people, with no offsetting benefit.
This reasoning, surely, is obvious. How, then, can anyone favour a ban rather than a Pigovian tax?
It's tempting to just blame a combination of economic illiteracy and knee-jerk illiberalism.
But might there not be another reason? Could it be that those of us who think markets and Pigovian taxes work better than bans just haven't made our case strongly enough - perhaps because the argument for free markets have been besmeared by their (unnecessary) association with the self-interest of the rich?

Comments

[dearieme]

It is called the "Energy Saving Trust" not the "Energy Optimising Trust".

[kharris]

May I offer another possibility? Those who argue for Pigiovian taxation may have failed to make their case as a theoretical matter, or may not. As a practical matter, though, supporters of Pigovian taxation have failed to do the job. In what society have such taxes successfully impounded all negative externalities in the cost to those who generate those externalities? When is the last time a state legislature reworked its tax code in an effort to make private costs of all activities reflect social costs? If the answer to these questions is "never" then what claim can you make that your approach has practical merit? Banning a heater is a simple matter, legislatively. It is fine to make the argument, but you must also make the policy, or let others do the job instead.

By the way, statements like this -

"This would ensure that the private cost of the patio heater equals the social cost."

don't give the impression that you are serious. One cannot "ensure that the private cost of the patio heater equals the social cost" unless one has a very good estimate of social costs. In this particular case, we have no such estimate. This is fine for the coffee shop or the classroom, as long as one is honest enough to admit at the end of the discussion that things are different in the real world.

The same is true of a host of other sentences in your argument. Saying that something is true by definition, for instance, is to say that the person who does the defining gets to decide what's true. Like that's gonna convince anybody. Things that are true "be definition" are only necessarily true inside the model. They are true where it matters if they are true empirically. Same with the silliness about "possibly by cutting other forms of energy use." Yes, and possibly not. Such statements are no more than salesmanship, and not very good salesmanship.

[Matthew]

They aren't calling for a ban, instead they are asking retailers not to sell them. If the pleasure for shareholders in not selling them overwhelms the profis from selling them, then it remains socially optimal, doesn't it?

Incidentally I have a confession, which is this story reminded me I was planning to buy one, and so I did.

[Phil A]

The Energy Saving Trust was created and is significantly funded by the Government. As to the so-called social cost. What exactly would that be?

As to why the use of patio heaters is expected to double in the next year. Why basically as a consequence of the entirely unnecessary ban on smoking in pubs imposed by the Government.

So a problem caused by the government then. Solution? Lift the ban.

[Tim Worstall]

Well, we do have a good estimate (it's one of many but still....) of the social cost. It's $85 per tonne CO2. Thats from the Stern Review.
All we need is a Pigou Tax of that amount upon emissions (suitably tweaked for methane etc etc) and we're done. Air Passenger Duty is at that level now. So we're finished with aviation. Fuel Duty is vastly above it so we're done in the transport sector all told.
Easy, this dealing with climate change, innit?

[ad]

"But might there not be another reason?"

Self-righteousness, probably. If you want the pleasure of denouncing someone or some behaviour as unutterably evil and hateful, you cannot then add "so let's tax it!"

It would be like suggesting a tax on rape and murder.

[John A]

Also, it's the public's perception of politics which figures into this one. If all the people who didn't want a mobile phone mast in their garden were registered and taxed to bribe those who would have one, I reckon people would see sense more quickly.

[Chris]

The "problem" with pigovian taxes is that they don't affect the rich; ie trippling the cost of energy usage will have little impact on the rich, often considered those that waste energy - but will have a big affect on the poor; those that use little energy already.

The second aspect is that people seem to have a list of things for which energy usage is acceptable (say a BBQ or driving a reasonably sized car) but a list of things for which it is not (these heaters or american style trucks). They don't want to just tax the usage of all energy but the usage of energy that is considered wasted. The same might apply to those that think the cost of water should be higher if the water is used to fill a swimming pool than if it is drunk or used to shower with.

I don't support these arguments at all, but I believe they are the reason that pigovian taxes will not be seen as "the answer" here.

(Saying that, you could have a pigovian tax just on these heaters and not on the gas that they use; but that istn't really the idea of a pigovian tax, and it would certainly not be effecive; if you have spent a lot of money to buy one but the marginal cost of usage remains low you are likely to use it a lot more than had the capital cost been lower).

[Chris]

To add to my point above, ask someone how much someone should have to pay to waste 1 unit of electricity (e.g. to leave lights on because they can't be bothered to flick a switch). Ask them again for various other uses of electricity (transport, entertainment etc).

My guess is you will get widly different costs depending upon the use of the electricity.

Economics realy can't handle this; it's not designed to price a generic good at different prices depending upon how that good is used (for vary good reasons). This is then why people demand bans and not taxes.